Zenefits Reboots as Z2. But It Might Not Be Enough

In mid-November, The Wall Street Journal reported that the human resources startup had fallen behind on its revenue targets. Two weeks later, BuzzFeed revealed that the startup’s salespeople sold insurance in states where they weren’t properly licensed, with some of them faking their online training requirements. By February, its founder, a former media golden boy named Parker Conrad, resigned as both CEO and director. The company’s chief operating officer, David Sacks, stepped into the CEO role, and over the next several months, he cut 350 from the company’s staff and sliced its valuation from $4.5 billion to $2 billion.

But that wasn’t the kicker. Today, the company changed both its platform and its business model.

Today, Zenefits changed both its platform and its business model. It’s now called Z2.

This morning, at a conference in San Francisco, Zenefits announced that its platform is now called Z2. It added price tags to a pair of services that were previously free. And it plugged its services into related tools from a wide variety of partners. Under Sacks, the former PayPal chief exec, the startup is gamely trying to distance itself from its extensive and high-profile problems of the past year. Now, we’ll have to whether this works. It’s a nice test case for whether the Silicon Valley Unicorn ethos can survive such an enormous setback. As we watch Zenefits, we’ll also watch Theranos and Hampton Creek and all the other big names that have fallen on hard times.

The new Zenefits still tries to alleviate the drudgery of HR, benefits, and payroll for the 20,000 customers it says it serves, but Sacks now calls it “a platform.” This means the company is partnering with 17 outside companies so that its services can operate in tandem with common business tools like Google’s G Suite, Microsoft Office 365, Slack, and Expensify. Plus, the company now lets businesses shop for insurance plans via an online map—not just through its network of (ahem, definitely licensed) insurance brokers. The idea is that you can quickly grab new insurance for employees when you expand your business into a new part of the company.

The company still offers some its insurance software for free and takes a cut of the commission paid by insurance companies. But its now selling other services in a more traditional way. It’s charging a $35 monthly fee for Zenefits Payroll software, which manages payroll, time off, and other tasks, and $5 per month per employee for HR Advisor app, which gives you access to the company’s staff of HR experts. Zenefits Payroll is available in California today, with other states to follow.

Meanwhile, the company has created an internal compliance app designed to prevent employees from selling insurance if they don’t have the proper credentials to do so, and it has paid out about $1 million in settlements in nine states for flouting insurance laws. But some believe that all this isn’t quite enough. “The correct answer is for the company to be liquidated,” says Ben Edelman, an associate professor at Harvard Business School who studies the economics of online markets. “Then some other company can take the best of what’s best about Zenefits and start a new one.” Other startups are already stepping up to try to take market share in the HR software space, including San Francisco-based Gusto, which rushed to unveil new tools ahead of the Z2 relaunch.

But Robert Siegel, a lecturer in management at Stanford’s business school, believes the company deserves a chance. “It’s important to look at how they fix those things, and make restitutions,” he says. In the end, he explains, it’s the government, investors, and indeed, Zenefits’ own customers that will decide the fate of this embattled company.